Hi,
so here it is: What percentage of your account balance do you risk per trade? I read several numbers now ranging from 0,5% to 10% per trade. But say if you just have a few thousands in your account, 2000 for example, it would take ages to build a fortune if one risked just 1 percent. What do you guys think is a reasonable risk for a small account (1000-10000 Dollars)?
Cheers,
Chris
Tough question. Do you mean what percentage of used margin of your account is put into trade at one time or what percentage of your account is exposed to loss assuming the trade goes against you and your stop loss is hit?
I find people are mixing these two things up alot. For example the 1% rule seems to be popular however various people will interpert it differently. To some 1% of used margin is what they mean but if they have high leverage and not stop loss you could lose much more than 1%.
I stick to 6-8% in the beginning, sometimes add more entries, but NEVER cross 12% per trade, so I don’t run any risk in getting margined out.
i think if you have an account size like that then you should risk only 10% to be on the safe side
I think you are looking too short. If you risk alot of your account say 10% to 20% how many losing trades can you suffer befor you get stopped out? Then you have to add funds and go through the whole process again. On the other hand if you risk only 1% to 5% how many losses can you handle? Remember the main reason most people lose in the fx market is because of underfunding.
Dont worry about trying to hit a home run on every trade. If you really want to make a fortune in this business then ask yourself. How much do I want to make per month? And how soon do I need to reach this goal? If you do not need to reach this goal for a long time then just let your small account grow. If you are in a hurry then just keep adding to your account until you can pull off the profits that you need. If you look at the market as a get rich scheme all you will do is end up loosing your hard earned money.
If you are not sure about how much to trade then do your own experiment. Open two demo accounts. Trade both accounts the exact way. Both with $2000. One account you will use a stop loss of 5%. That means that you will stop you loss at $100 on your first trade. The other account you will set your loss at %20 That means your first trade you will risk $400. Your take profit will be 1.5 times your risk. $150 on the first account and $600 on the other account. After 3 months or even 6 months (if you can wait that long) you will see which way is the more profitable system.
you are missing a point here. what is the rule of investing ? do not invest money you cannot afford to lose ! you should be asking yourself the question: can i afford to lose $X ? if yes, then go ahead, open a live account and trade away. if you cannot afford to lose that money do not trade. period.
and when you trade, it is of utmost importance to have a system and a set of rules. and not to break those rules no matter what. the problem with most traders is discipline. and regarding risk, like warren buffet put it, there is no risk if you know what you’re doing, there is risk when you don’'t know what you’re doing.
and another thing: no guts, no glory !
Bicpetrisor, You make a good point in you second paragraph. However the first paragraph I think you misses something. Don’t go out and open an account just because you have a few thousand to lose. That is gambling. After you have a system and have some extra money then open an account. And the question is “How much per trade?” Not “How much per account?” That is where money management comes into affect. And the third paragraph works good in sports but not when you trading. You dont need guts to trade only a system and good money management.
Creeper think of it this way if you just make 1% per day, it will take you less then 90 days to double your account. That is 300% a year. $2000 to $8000 in 1 year. What happens on year 2 or 3 or 4? Do the math. If that is not fast enough for you then maybe you should just put all of your money on the lotto. But that is gambling!
i meant of course opening a live account, once you have demo traded a lot, have a system, understand the market etc.
and regarding the no guts, no glory: once you have a system that has proven profitable over time ( extensive testing etc etc), i do not see why not to take larger positions. that’s what i meant by guts. if you are confident in your system, you know that it works etc, then i really don’t see why one should not take larger positions. sure, it can also happen that you lose, but then you limit your loss, and your profits outweigh your losses. anyway, that’s what i think and do 
I risk around 5%.
Actually, if you make 1% per day, you will double it on the 70th day of trading. If you consider 365 days a year and make 1% per day, with a starting account of $2000, you will have over $75,000 after the first year.
Since the market is really only open about 5 days per week, and not counting 4 weeks (20 days) for vacation, sick days, etc. then you have 240 days of actual trading. If you make 1% per day, you will accumulate over $21,000 in your first year. That’s 1089% per year, so you’d have $238,000 after year two, and about $2.6 million after year three.
That includes an optomistic attitude, but does not include taxes. I think you have to be a very good trader to get 1% per day. This week alone I have had 3 successful trades and 2 losses on a $5k demo account, trading with 0.25 lots (about 1.25% of my account). I’ve made about $150, which is a 3% increase for the week.
When I can consistently average a 70% success rate, I will probably increase my risk.
I may be new at this, but it seems to me that money management, ie risk managment,(making sure your combined wins outweigh your combined losses) is an essential part of any trading system.
You first need to decide what % of your account you will risk before you even start trading a system, no?
And please do be careful.
I have head many a tale of traders who had some good initial luck with a new system, kept increasing the % of their account, meaning higher leverage, and then experienced several losing trades in a row, which wiped out not only their profits but much of their accounts as well.
Remember what Einstein said about compound interest, “Its the 8th wonder of the world.”
If you make just 1%/week then after 52 weeks you have 67% gain.
Assumeing that capital gains on Forex is counted as income,(is it?) then the most you will pay is 50% in taxes. So to be conservative cut that 67% in half.
You are making 33.5% net annual returns. If you can do this consistantly then you will double your account every 2 years, approximately.
Thus after 10 years you have 3100% return, making a $1,000 account worth $32,000. After 20 years your account is worth over $1 million.
Now imagine you start with $10,000.
Your first million will come in less than 7 years. And after 10 years you can retire in luxury.
By the way, for the record I never risk more than 1% of my account. I also use Oanda which lets me increase and decrease lot sizes by the individual unit, meaning 1 Euro, dollar, ect. to always risk 1% no matter the drawdown or exponential profit growth.
Here is a risk management tool for excel you may find useful. Remember that different pairs have different pip costs.
In that spreadsheet posted below, is the equity currency USD?
Thanks,
James
Yep that’s right.
I am suitable 5% at my percentage of my risk per trade . as long i am discipline to apply that rule , my account can grow . but unfortunately my trade not always do that , i am tend want earn more and more so my trade sometimes in high risk style
Hey, I have seen that professional traders always trade a fixed LOTS amount as in not a % of their account
This seemed very strange to me because pretty much 100% of all forex articles and guides say that you should be putting a fixed % of your account in each trade instead of a fixed lots amount but since they are professionals doing this I have to ask why?
Because they don’t use the same stop loss amount… this means they lose/gain a fixed $ amount per pip increase/decrease.
but it means they are risking a different % of their account every trade… if they put a stop loss at 10 pips below entry and then on another trade 20 pips below entry then on the second trade they are trading the double % of account than the first trade that had just 10 pip SL.
But if you trade fixed % of account instead of fixed lots amount then each pip movement will be worth a different amount in different trades.
So…
Secondly,
I have been thinking about trading many different systems because sometimes with system1 you don’t find any entries but if you switch to system2 then you might find an entry.
But different systems have different success performances… so I am thinking about investing different % of account per each system.
But it’s a bit difficult to decide how much % of account to trade with each system…?
It is right that the best risk in each transaction is between 1-5% in each transaction so it will be more comfortable for traders to trade without too much risk. Maybe it will be different if you’re using scalping method because scalping will open more transactions than another style of trading. It’s better to use moderate risk in trading so you won’t lose too much when you made mistake.
5% to 10% is high risk a trader takes in any trade .Because loosing this money is much . One should take low risk as 0.5% to 1% is enough . I also take this risk . I just make low profits as my risk is low. It keeps me safe in unfavorable conditions too.
1-2%. There is a good book on the subject by Ralph Vince. He proved there that if you risking more then 2% on a given trade you are starting to stack the chances seriously against you.